If you’re looking for a way to finance your cruising, or perhaps you just want to sell your boat for what you bought it for, arbitrage (buying and selling in order to take advantage of price differences across markets) is a legitimate way to meet your goals.
Before leaving on a cruise from Vancouver, BC to Sydney, Australia, Robin and I had been told by several sailors that we could sell the old 35 footer we’d bought in Vancouver for 2-3x the price we’d paid for it in Australia. How compelling! By buying low and selling high, would it be possible to finance our cruising over the next 2-3 years? Could we even stand to make a bit of money? It sounded like a good plan, if not too good to be true.
Fast forward just a few months and we found that by the time we’d got the boat into ocean-crossing shape we’d spent tens-of-thousands more than we would sell it for, not to mention all of the additional living costs we racked up over the following 2.5 years. So, you can imagine our surprise when we met someone who had successfully arbitraged more than half-a-dozen boats while cruising the world with his family! It turns out there is a right and a wrong way to arbitrage a sailboat, and we definitely did it the WRONG way!
I recently sat down with boat broker extraordinaire, Rod Waterhouse of DBY Boat Sales in Pittwater, Australia, and he let me in on the RIGHT way to buy and sell boats for a profit abroad. Here are the top 5 tips I gleaned from our conversation on sailboat arbitrage.
1. Buy upwind, sell downwind
Your first decision will be where you will start and end your trip (or in which markets you will buy and sell your boat).When choosing your buying and selling markets, remember that sailing downwind is going to be a lot easier on your boat than sailing upwind. If you go with the winds you’re less likely to get stuck with big repair bills along the way and your boat will reach your destination market in better condition than if you took it on an upwind bash. On our trip we met North American sailors who bought local and sold in Australia, as well as Europeans who bought charter boats in places like Croatia and sold in Australia.
2. Watch the currency markets.
Fluctuations in currency will be one of the greatest factors affecting the success of your arbitrage adventure! Have a good sense of the long-term outlook for the exchange rates of the markets in which you are buying/selling as well as your home currency.
3. Talk to local market experts.
Once you’ve settled on your geographic markets, start by reaching out to professionals in your destination market (where you plan to sell the boat) and get a sense for what boat types are selling well. While it might sound crazy to talk to the broker you plan to sell the boat with, before you even buy the boat, this will actually set you up for success in the long run (and most brokers are happy to share their knowledge). For example, Rod told us that in Australia, the most in-demand boats are newer production boats and in particular, catamarans. If only we’d known that when we started! We heard from another broker that production-type charter boats are selling well in the Caribbean as charter companies rebuild their storm-damaged fleets.
4. Go Big
This was another area where we totally missed the mark. Our boat-buying strategy was to go small, debt-free, and invest our time/money in a fixer-upper. We bought a 35ft monohull from 1979, because it was cheap, thinking that with money and time invested, we would add significant value. It turns out that we may have been better investing our small-boat budget in a down-payment on a $200,000 boat and financing the rest. The reason for going big is that any profit % you make is multiplied out over a bigger number while your cost of cruising is relatively fixed. So for example, let’s say that you can sell a boat for 20% more in market X than than you bought it for market Y. On a $50K boat you make $10K while on a $200K boat you make $40K. Meanwhile your cruising costs of food, gas, entertainment, etc. will be relatively fixed regardless of the type of boat you’re on. Also, a more expensive boat is likely also a newer boat and in general you should have less repairs/replacements to make as you go (though this is not always the case and will depend on the individual boat!). Rod did caution that financing a boat is not for everyone. Bear in mind that If you run into trouble (e.g. currency or market changes), those big numbers can also swing in the other direction.
5. Clip-in, clip-out.
Now that you’ve bought your perfect sailboat for arbitrage, you’ve probably noticed that there’s a whole bunch of gear missing! Most boats you’re likely to buy will not set up for offshore cruising and will be missing important items like life-rafts, satellite communication, water-makers, etc. Also, when you go to sell your boat, most buyers will be purchasing it for coastal cruising and won’t value (or pay for) all of the extra offshore goodies. Rod’s solution is to clip-in and clip-out, or in other words choose offshore gear that doesn’t require a lot of installation so that you can easily part-out the boat when you go to sell. So for example you could choose an Iridium Go over SSB, a portable watermaker over installed watermaker, a generator over solar power, and the list goes on… If you decided to become a serial sailboat arbitrageur, you may even choose to keep a kit of all the offshore necessities that you ship from one boat to the next. This is what Rod has done as the cost of shipping these items is a fraction of what you’d pay for them new, not to mention the advantages of knowing your gear.
While it was not our experience, I learned through my conversation with Rod that it is indeed possible to cover your costs of cruising by buying low and selling high in different geographic markets. He even knows people who have employed this formula and made money over and above the cost of their sailing trip. I think it’s a very exciting idea and something that we will personally shoot for on our next cruising adventure. However, I would also advise people to plan their trip around their cruising goals and not around their investment goals. There are so many ups and downs in cruising that it’s impossible to plan for all the variables and, if you are in the vast majority of cruisers, you will end your trip low on funds but rich in experience. My advice is to go now, be financially conservative, and if you make a few bucks along the way then bonus!
A big thank you to Rod Waterhouse and the team at DBY Boat Sales for sharing their boat wisdom with us!
To learn more about boat buying, check out our 6-part boat buying series with everything you need to know about buying a boat.